Sun Life Financial reports second quarter results



    
    Note to Editors: All figures shown in Canadian dollars unless otherwise
    noted.
    

    TORONTO, Aug. 6 /CNW/ - Sun Life Financial Inc. (TSX/NYSE:   SLF) reported
net income of $591 million for the second quarter of 2009, compared with net
income of $519 million in the same period last year. Fully diluted earnings
per share was $1.05 compared to fully diluted earnings per share of $0.91 in
the second quarter of 2008, an increase of $0.14. Return on equity was 14.9%
for the quarter, up from 12.9% reported in the same quarter last year.
    Results in the second quarter of 2009 were favourably impacted by reserve
releases as a result of higher equity markets, increased interest rates and
the positive impact of narrowing credit spreads. Strong results from
improvements in capital markets in the second quarter were partially offset by
increased reserves for downgrades on the Company's investment portfolio,
changes in asset default assumptions in anticipation of future credit-related
losses, as well as credit impairments incurred during the quarter.
    The Company's capital levels remain strong and well balanced to support
the risks associated with the business while optimizing shareholder return. As
at June 30, 2009, the Company reported a Minimum Continuing Capital Surplus
Requirement (MCCSR) ratio of 231% for Sun Life Assurance Company of Canada.
    "Equity markets showed substantial improvement in the second quarter
resulting in strong earnings gains," said Donald A. Stewart, Chief Executive
Officer, Sun Life Financial. "Equally impressive was the strength and momentum
in our businesses. In Canada, strong brand and distribution remain critical
during volatile market conditions. In our U.S. insurance business sales
benefited from a flight to quality, while at MFS continued excellence in
investment performance resulted in positive net flows."
    He went on to say "Recent equity market gains are encouraging, however a
full, broad-based economic recovery will take time and credit conditions
remain a headwind in the current environment. Earnings continue to be heavily
influenced by external economic factors and will again be a factor in the
third quarter as we update our equity and interest rate related assumptions in
accordance with professional guidance for reserving and capital. We remain
focused on maintaining a healthy capital base, well in excess of minimum
regulatory levels. While market turbulence can result in quarterly earnings
volatility it does not diminish the underlying strength of our businesses."

    
    MANAGEMENT'S DISCUSSION & ANALYSIS
    For the period ended June 30, 2009
    Dated August 6, 2009

    Earnings and Profitability

    The financial results presented in this document are unaudited.

    FINANCIAL SUMMARY


                                 Quarterly Results              Year to date
    -------------------------------------------------------------------------
                       Q2'09   Q1'09   Q4'08   Q3'08   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Common shareholders'
     net income (loss)
     ($ millions)         591    (213)    129    (396)    519     378   1,052
    Operating earnings
     (loss)(1)
     ($ millions)         591    (186)   (696)   (396)    519     405   1,052

    Basic earnings
     (loss) per common
     share (EPS) ($)    1.06   (0.38)   0.23   (0.71)   0.92    0.68    1.87
    Fully diluted
     EPS ($)            1.05   (0.38)   0.23   (0.71)   0.91    0.67    1.85
    Fully diluted
     operating
     EPS(1) ($)         1.05   (0.33)  (1.25)  (0.71)   0.91    0.72    1.85

    Return on common
     equity (ROE) (%)   14.9    (5.5)    3.3   (10.2)   12.9     4.7    13.2
    Operating ROE(1)    14.9    (4.7)  (17.9)  (10.2)   12.9     5.1    13.2

    Average common
     shares
     outstanding
     (millions)        559.8   559.7   559.7   559.7   561.6   559.7   562.7
    Closing common
     shares
     outstanding
     (millions)        560.7   559.7   559.7   559.7   559.9   559.8   559.9
    -------------------------------------------------------------------------
    

    Sun Life Financial Inc.(2) reported net income attributable to common
shareholders of $591 million for the quarter ended June 30, 2009, compared
with net income of $519 million in the second quarter of 2008. Net income in
the second quarter of 2009 was impacted by reserve releases of $432 million as
a result of favourable equity markets, $104 million from increased interest
rates and $117 million from the favourable impact of narrowing credit spreads.
This was partially offset by $217 million in reserve increases for downgrades
on the Company's investment portfolio, $97 million in reserve increases
related to changes in asset default assumptions in anticipation of future
credit-related losses and $121 million in net credit impairments incurred
during the quarter. Results in the second quarter of 2008 included earnings of
$26 million or $0.05 per share from the Company's 37% ownership interest in CI
Financial, which the Company sold in the fourth quarter of 2008.
    Return on equity (ROE) for the second quarter of 2009 was 14.9% compared
with 12.9% for the second quarter of 2008. The increase in ROE resulted from
earnings per share (EPS) of $1.05, which was higher than EPS of $0.91 reported
in the prior year.
    Common shareholders' net income for the first six months of 2009 was $378
million, compared to $1,052 million in the same period in 2008. Net income in
the first six months of 2009 was adversely affected by reserve increases for
downgrades on the Company's investment portfolio, changes in asset default
assumptions in anticipation of future credit-related losses and net credit
impairments. This was partially offset by favourable equity markets and
increased interest rates in the second quarter of 2009. Results for the first
six months of 2008 included earnings of $69 million from the Company's 37%
ownership interest in CI Financial.
    Operating net income for the first six months of 2009 was $405 million,
compared to $1,052 million in the first six months of 2008. Operating net
income for the first six months of 2009 included after-tax charges of $27
million for restructuring costs taken as part of the Company's efforts to
reduce expense levels and improve operational efficiency.

    Impact of Currency

    In general, the Company's net income benefits from a weakening Canadian
dollar as net income from the Company's international operations is translated
back to Canadian dollars. The relative impact of currency in any given quarter
is driven by the movement in currency rates as well as the proportion of
earnings generated in the Company's foreign operations. The Company generally
expresses the impact of currency on net income on a year-over-year basis.
During the second quarter of 2009 the Canadian dollar appreciated relative to
the U.S. dollar, however, year-over-year the value of the Canadian dollar
weakened. In the second quarter of 2009, the Company's overall net income was
increased by $72 million from the weakening of the Canadian dollar relative to
the second quarter of 2008.

    Future Impact of Certain Prospective Actuarial Assumption Changes

    As a result of pronounced market volatility over the past year and in
accordance with professional guidance for reserving and capital, the Company
expects to update the equity and interest rate related assumptions used to
value variable annuity, segregated fund, certain fixed annuity and individual
life liabilities in the third quarter of 2009. While the precise impact is not
yet determinable, the Company estimates that there will be an unfavourable
impact to net income as a result of these updates in the range of $450 million
to $550 million after-tax, including management actions. In addition, the
Company expects that these updates will reduce its regulatory capital ratios.
However, the Company expects to remain strongly capitalized after these
updates are in effect. The estimated impact of these changes is
forward-looking information. Additional information on these changes can be
found in the "Outlook" section of this document.

    Performance by Business Group

    The Company manages its operations and reports its results in five
business segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial
U.S. (SLF U.S.), MFS Investment Management (MFS), Sun Life Financial Asia (SLF
Asia) and Corporate. Additional detail concerning the segments is outlined in
Note 5 to Sun Life Financial Inc.'s Interim Consolidated Financial Statements,
which are prepared in accordance with Canadian generally accepted accounting
principles (GAAP). Where appropriate, information on a business segment is
presented both in Canadian dollars and the segment's local currency to
facilitate the analysis of underlying business trends.


    
    SLF Canada

                                 Quarterly results              Year to date
    -------------------------------------------------------------------------
                       Q2'09   Q1'09   Q4'08   Q3'08   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Common shareholders'
     net income (loss)
     ($ millions)
      Individual
       Insurance &
       Investments       136      77    (130)     28     177     213     326
      Group Benefits      53      65      74      81      80     118     129
      Group Wealth        28      52       1      48      39      80      88
    -------------------------------------------------------------------------
    Total                217     194     (55)    157     296     411     543
    -------------------------------------------------------------------------
    

    SLF Canada had net income of $217 million in the second quarter of 2009
compared to net income of $194 million in the first quarter of 2009 and
earnings of $296 million in the second quarter of 2008. The decrease in
earnings from the second quarter of 2008 was mainly attributable to
unfavourable interest rate related hedge impacts, changes in asset default
assumptions in anticipation of future credit-related losses, lower morbidity
gains and increased tax provisions. This decline in earnings was partially
offset by the impact of increasing equity markets during the second quarter of
2009. Results in the second quarter of 2008 included earnings from the
Company's 37% ownership interest in CI Financial, which the Company sold in
the fourth quarter of 2008.

    
    -   Individual Insurance & Investments earnings were $136 million for the
        second quarter of 2009 compared to earnings of $177 million in the
        second quarter of 2008. Earnings in the second quarter of 2009 were
        lower due to unfavourable interest rate related hedge impacts,
        changes in asset default assumptions, lower earnings due to the sale
        of the Company's ownership interest in CI Financial and increased tax
        provisions. This decline in earnings was partially offset by the
        impact of increasing equity markets.

    -   Group Benefits earnings were $53 million for the second quarter of
        2009 compared to $80 million for the same quarter of 2008 due
        primarily to lower morbidity gains and changes in asset default
        assumptions.

    -   Group Wealth earnings were $28 million for the second quarter of 2009
        compared to $39 million for the same quarter one year ago due
        primarily to changes in asset default assumptions.
    

    Earnings for the first six months of 2009 were $411 million compared to
$543 million for the same period last year. Net income decreased primarily
from lower earnings due to the sale of the Company's holdings in CI Financial,
unfavourable interest rate related hedge impacts and changes in asset default
assumptions in anticipation of future credit-related losses.
    Despite the challenging economic environment in the second quarter of
2009, SLF Canada maintained sales momentum. Sales of Individual fixed interest
products, including accumulation annuities, GICs and payout annuities,
increased 119% from the same period a year ago to $248 million. In Group
Benefits, sales increased by 68% to $69 million in the second quarter of 2009
compared with the same period last year. In Group Wealth, Group Retirement
Services (GRS) sales included $193 million of retained assets from members
leaving plans, representing a 46% retention ratio. GRS continued to build on
its leadership position in the Defined Contribution (DC) industry in the first
quarter of 2009 capturing 57% of total DC market activity, as recently
reported by LIMRA.


    
    SLF U.S.

                                 Quarterly results              Year to date
    -------------------------------------------------------------------------
                       Q2'09   Q1'09   Q4'08   Q3'08   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Common shareholders'
     net income (loss)
     (US$ millions)
      Annuities          212    (324)   (672)   (456)     22    (112)     97
      Individual
       Insurance          95     (57)     95     (76)     35      38      54
      Employee Benefits
       Group              30      48       1      30      25      78      44
    -------------------------------------------------------------------------
    Total
     (US$ millions)      337    (333)   (576)   (502)     82       4     195
    Total
     (C$ millions)       422    (407)   (679)   (533)     83      15     196
    -------------------------------------------------------------------------
    

    SLF U.S. had net income of C$422 million in the second quarter of 2009
compared to a net loss of C$407 million in the first quarter of 2009 and
earnings of C$83 million in the second quarter of 2008. The depreciation of
the Canadian dollar against the U.S. dollar increased the reported income in
SLF U.S. by C$57 million in the second quarter of 2009 compared to the second
quarter of 2008.
    In U.S. dollars, earnings were US$337 million compared to earnings of
US$82 million in the second quarter of 2008. Results were higher primarily
from the favourable impact of equity markets, the narrowing of credit spreads
and increasing interest rates. The favourable impacts on earnings were
partially offset by reserve increases related to changes in asset default
assumptions in anticipation of future credit-related losses and downgrades on
the investment portfolio, as well as net credit impairments incurred during
the quarter.

    
    -   Annuities earnings were US$212 million compared to earnings of
        US$22 million in the second quarter of 2008. Earnings were higher
        primarily due to improved equity markets and the favourable impact of
        narrowing credit spreads on fixed annuities resulting in a decrease
        in reserves. This was partially offset by hedge impacts, reserve
        increases for changes in asset default assumptions and downgrades on
        the investment portfolio, as well as net credit impairments incurred
        during the quarter.

    -   Individual Insurance earnings for the second quarter of 2009 were
        US$95 million compared to earnings of US$35 million in the second
        quarter of 2008. Earnings increased primarily as a result of
        favourable interest rate movements and the impact of additional
        hedging activity, partially offset by reserve increases in
        anticipation of higher funding costs for universal life products with
        secondary guarantees.

    -   Employee Benefits Group (EBG) earnings were US$30 million compared to
        US$25 million in the second quarter of 2008. Earnings were higher as
        a result of increased interest rates during the quarter and the
        impact of favourable claims experience.
    

    Earnings for the first six months of 2009 were US$4 million compared to
US$195 million for the same period last year. Earnings were lower primarily
due to the impact of credit-related allowances and credit-related losses in
Annuities, and the unfavourable impact from the implementation of an internal
reinsurance transaction in Individual Insurance for capital efficiency. These
decreases were partially offset by favourable interest rate movements and
favourable EBG claims experience. EBG earnings for the first six months of
2009 were US$34 million higher than the same period last year.
    Despite challenging financial markets, domestic variable and fixed
annuity sales in the second quarter of 2009 were US$1.3 billion and EBG sales
were US$126 million, an increase of 76%, and 3%, respectively, compared to the
second quarter of 2008. Although Individual Life second quarter 2009 sales of
US$60 million were down 39% compared to the second quarter of 2008, sales of
Individual Life core products were up 33% compared to the same period a year
ago.


    
    MFS Investment Management

                                 Quarterly Results              Year to date
    -------------------------------------------------------------------------
                       Q2'09   Q1'09   Q4'08   Q3'08   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Common shareholders'
     net income
     (US$ millions)       27      23      25      47      55      50     114
    Common shareholders'
     net income
     (C$ millions)        32      28      30      49      56      60     115

    Pre-tax operating
     profit margin
     ratio(3)            23%     21%     21%     29%     34%     22%     34%
    Average net assets
     (US$ billions)      140     125     133     176     191     133     189
    Assets under
     management
     (US$ billions)      147     124     134     162     183     147     183
    Net sales
     (redemptions)
     (US$ billions)      4.9     0.2    (2.1)   (2.0)    1.0     5.1    (1.7)
    Asset appreciation
     / (depreciation)
     (US$ billions)     17.9   (10.7)  (25.5)  (19.4)   (2.0)    7.2   (14.5)

    S&P 500 Index
     (daily average)     893     811     910   1,255   1,371     852   1,360
    -------------------------------------------------------------------------
    

    MFS had net income of C$32 million in the second quarter of 2009 compared
to earnings of C$28 million in the first quarter of 2009 and earnings of $56
million in the second quarter of 2008. The movement of the Canadian dollar
against the U.S. dollar increased earnings for MFS by C$4 million in the
second quarter of 2009 compared to the second quarter of 2008.
    In U.S. dollars, second quarter earnings were US$27 million compared to
US$55 million in the second quarter of 2008. The decrease in earnings from the
second quarter of 2008 was primarily due to lower average net assets as a
result of the decline in global financial markets.
    Six-month earnings were US$50 million compared to US$114 million in the
same period last year. The decrease is primarily due to lower average net
assets as a result of the decline in global financial markets.
    Total assets under management at June 30, 2009 were US$147 billion, an
increase of US$13 billion compared to December 31, 2008, driven by asset
appreciation of US$7.2 billion and net inflows of US$5.1 billion.
    Net flows in the second quarter of 2009 were US$4.9 billion, including
retail net flows of US$1.2 billion. MFS' retail fund performance remains
strong with 92% of fund assets ranked in the top half of their respective
Lipper categories based on three-year performance. Performance in the U.S.
equity and global/international equity categories has been especially strong,
with 93% and 97% of fund assets, respectively, ranking in the top half of
their respective three-year Lipper averages as of June 30, 2009.


    
    SLF Asia

                                 Quarterly results              Year to date
    -------------------------------------------------------------------------
                       Q2'09   Q1'09   Q4'08   Q3'08   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Common shareholders'
     net income (loss)
     ($ millions)         20      17      16      (8)     12      37      25
    -------------------------------------------------------------------------
    

    Second quarter earnings for SLF Asia were $20 million compared to
earnings of $17 million in the first quarter of 2009 and $12 million in the
second quarter of 2008. The increase in earnings from the second quarter of
2008 was primarily due to increased net income in Hong Kong as a result of
improved economic conditions including favourable equity and interest rate
movements.
    Earnings for the first six months of 2009 were $37 million compared to
$25 million for the same period last year. Earnings were higher primarily from
increased net income in Hong Kong as a result of improved economic conditions.
Results for the first six months of 2008 were unfavourably impacted by the
widening of credit spreads in Hong Kong.
    Sales in SLF Asia for the first six months were down 1.5% compared to the
first six months of 2008 with continued growth in India offset by a slow down
in sales in other markets. Reduced preference for investment-linked products
created by volatile economic conditions has been mostly offset by increased
demand for traditional insurance products. In India, Birla Sun Life Asset
Management Company, the Company's mutual fund joint venture was awarded Mutual
Fund House of the Year for 2008 by CNBC-CRISIL. The award, which recognizes
outstanding mutual fund performance, has been awarded to Birla Sun Life Asset
Management two years in a row, a first in the Indian Mutual Fund industry. On
July 15, 2009, the new joint venture between Sun Life Financial and Commerce
International Merchant Bankers Group received regulatory approval. The joint
venture will enable Sun Life Financial's life, accident and health insurance
products to be distributed through the 600-plus branches of PT Bank CIMB 
Niaga in Indonesia.

    Corporate

    Corporate includes the results of Sun Life Financial U.K. (SLF U.K.) and
Corporate Support, which includes the Company's reinsurance businesses as well
as investment income, expenses, capital and other items not allocated to Sun
Life Financial's other business segments.


    
                                 Quarterly results              Year to date
    -------------------------------------------------------------------------
                       Q2'09   Q1'09   Q4'08   Q3'08   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Common shareholders'
     net income (loss)
     ($ millions)
      SLF U.K.           (48)      -      40      69      41     (48)    100
      Corporate Support  (52)    (45)    777    (130)     31     (97)     73
    -------------------------------------------------------------------------
    Total               (100)    (45)    817     (61)     72    (145)    173
    -------------------------------------------------------------------------
    

    The Corporate segment had a loss of $100 million in the second quarter of
2009 compared to a loss $45 million in first quarter of 2009 and net income of
$72 million in the second quarter of 2008. SLF U.K. had a loss of $48 million
primarily as a result of reserve increases for downgrades on the investment
portfolio. In Corporate Support, earnings in the second quarter of 2009 were
lower by $83 million over the same period last year primarily as a result of
credit impairments incurred during the quarter, but not yet allocated to the
Company's various business groups, and the positive impact of changes in
income tax liabilities which favourably impacted results in the second quarter
of 2008, partially offset by improved mortality experience in the Company's
reinsurance business.
    Losses for the first six months of 2009 in the Corporate segment were
$145 million compared to earnings of $173 million for the same period last
year. Earnings in SLF U.K. were lower as a result of downgrades on the
investment portfolio, changes in interest rates and lower equity markets as
well as increases in reserves to reflect cash flow modelling for current and
prior period experience. In Corporate Support, earnings were lower from credit
impairments, restructuring costs taken as part of the Company's efforts to
reduce expense levels and improve operational efficiency, as well the positive
impact of income tax liabilities which favourably impacted results in the
first six months of 2008.
    On June 15, 2009 Sun Life Financial announced its proposed acquisition of
the United Kingdom operations of Lincoln National Corporation for an estimated
purchase price of $359 million. The final purchase price is subject to
adjustment related to market and business performance between signing and
closing and to a potential adjustment related to the Lincoln UK pension plan.
The completion of the transaction is subject to regulatory approvals and the
satisfaction of customary closing conditions and is anticipated to be
completed later this year. Sun Life Financial expects to use existing capital
to finance the acquisition. The acquisition will increase SLF U.K.'s assets
under management by nearly 60% to $19 billion and double the number of
policies in force to 1.1 million. The combined operation will carry the Sun
Life Financial of Canada name upon integration, a brand that has been active
in the United Kingdom for more than a century.

    
    Additional Financial Disclosure

    REVENUE
    

    Under Canadian GAAP, revenues include (i) regular premiums received on
life and health insurance policies and fixed annuity products, (ii) net
investment income comprised of income earned on general fund assets and
changes in the value of held-for-trading assets and derivative instruments,
and (iii) fee income received for services provided. Segregated fund deposits,
mutual fund deposits and managed fund deposits are not included in revenues.
    Net investment income can experience volatility arising from quarterly
fluctuation in the value of held-for-trading assets. The bonds and stocks
which support actuarial liabilities are designated as held-for-trading and
consequently, changes in fair values of these assets are recorded in net
investment income in the consolidated statement of operations. Changes in the
fair values of these assets are largely offset by changes in the fair value of
the actuarial liabilities, where there is an effective matching of assets and
liabilities. The Company performs cash flow testing whereby asset and
liability cash flows are projected under various scenarios. When an asset
backing liabilities is written down in value to reflect impairment or default,
the actuarial assumptions about the cash flows required to support the
liabilities will change, resulting in an increase in actuarial liabilities
charged through the consolidated statement of operations. Additional detail on
the Company's accounting policies can be found in Sun Life Financial Inc.'s
annual Management's Discussion and Analysis (MD&A), which are available on the
Company's website at www.sunlife.com.


    
                                 Quarterly Results              Year to date
    -------------------------------------------------------------------------
                       Q2'09   Q1'09   Q4'08   Q3'08   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Revenues
     ($ millions)
      SLF Canada       3,482   2,249   2,052   1,279   2,276   5,731   4,596
      SLF U.S.         3,920   2,360     587     546   1,624   6,280   2,684
      MFS                299     288     310     342     367     587     729
      SLF Asia           634     238     128     180      71     872     190
      Corporate (net
       of
       consolidation
       adjustments)      385    (107)  1,629     213      73     278      98
    -------------------------------------------------------------------------
    Total as reported  8,720   5,028   4,706   2,560   4,411  13,748   8,297
    -------------------------------------------------------------------------
      Impact of
       currency and
       changes in the
       fair value of
       held-for
       trading assets
       and derivative
       instruments     2,945    (358) (1,352) (2,889) (1,098)  2,587  (3,284)
    -------------------------------------------------------------------------
    Total adjusted
     revenue           5,775   5,386   6,058   5,449   5,509  11,161  11,581
    -------------------------------------------------------------------------
    

    Revenues for the second quarter of 2009 were $8.7 billion, up $4.3
billion from the comparable period a year ago. After adjusting for the impact
of currency and fair value changes in held-for-trading assets, second quarter
2009 revenue of $5.8 billion was $296 million higher than the same period a
year ago mainly due to growth in SLF Canada and SLF U.S. annuity premiums.
    Premium revenue was higher by $886 million in the second quarter of 2009
compared to the same period one year ago, with $295 million arising from the
weakening of the Canadian dollar against the U.S. currency. The increase of
$591 million, without the effect of currency, mostly arose from improved
annuity premiums. SLF Canada annuity premiums were higher by $196 million with
both Individual and Group Wealth stronger. SLF U.S. annuity premiums were up
$334 million before currency impacts mostly from growth in fixed annuity
sales.
    Net investment income of $3.9 billion was $3.5 billion higher in the
second quarter of 2009 compared to the same period a year ago. The changes in
fair market value of held-for-trading assets and derivatives improved net
investment income by $2.5 billion in the second quarter of 2009 compared to a
decrease of $1.1 billion in the second quarter of 2008. There was also a $267
million increase as a result of the weakening of the Canadian dollar against
foreign currencies.
    Fee income of $628 million in the second quarter of 2009 was down by $87
million compared to the same period in the previous year as a decrease of $148
million, before the impact of currency, from lower fees on reduced asset
values in the wealth businesses was partially offset by an increase of $61
million from the weakening of the Canadian dollar relative to the U.S. dollar.
    Revenues of $13.7 billion for the six months ended June 30, 2009 were up
$5.5 billion from the comparable period a year earlier. The primary areas of
improvement were the changes in fair value of held-for-trading assets which
had a positive contribution of $4.1 billion to the increase, excluding the
$233 million favourable impact of currency. Annuity premiums also contributed
$1.2 billion to the improvement including $293 million from the weakening of
the Canadian dollar.

    ASSETS UNDER MANAGEMENT (AUM)

    AUM were $397.5 billion as at June 30, 2009 compared to $381.1 billion as
at December 31, 2008, and $413.2 billion as at June 30, 2008. The increase of
$16.4 billion between December 31, 2008 and June 30, 2009 resulted primarily
from:

    
    (i)    positive market movements of $12.1 billion;
    (ii)   net sales of mutual, managed and segregated funds of
           $11.0 billion;
    (iii)  an increase of $2.0 billion from the change in value of held-for-
           trading assets; partially offset by
    (iv)   a decrease of $9.7 billion from a strengthening Canadian dollar
           compared to the prior period exchange rates.

    AUM decreased $15.7 billion between June 30, 2008 and June 30, 2009. The
decrease in AUM related primarily to:

    (i)    declining market performance that lowered AUM by $57.7 billion;
    (ii)   a decrease of $3.1 billion from the change in value of
           held-for-trading assets; partially offset by
    (iii)  an increase of $34.8 billion from the weakening of the
           Canadian dollar against foreign currencies;
    (iv)   net sales of mutual, managed and segregated funds of $6.4 billion;
           and
    (v)    business growth.

    CHANGES IN THE BALANCE SHEET AND SHAREHOLDERS' EQUITY
    

    Total general fund assets were $120.6 billion as at June 30, 2009,
compared to $113.6 billion a year earlier and $119.8 billion at December 31,
2008. Total general fund assets were up $7.0 billion from the June 30, 2008
level with business growth and an increase of $6.4 billion from the weakening
of the Canadian dollar against foreign currencies, partially offset by a
decrease of $3.1 billion from the change in value of held-for-trading assets.
    Total general fund assets increased by $814 million from the December 31,
2008 level of $119.8 billion. The favourable impact of $2.0 billion from the
change in value of held-for-trading assets and business growth boosted general
fund assets in the first half of 2009. These increases were partially offset
by a reduction of $2.2 billion from the strengthening of the Canadian dollar
against foreign currencies.
    Actuarial and other policy liabilities of $83.6 billion as at June 30,
2009 increased by $2.2 billion compared to December, 31, 2008, with an
increase of $2.0 billion related to corresponding changes in fair value of
held-for-trading assets and business growth mostly from annuity sales in SLF
U.S. and SLF Canada, partly offset by a reduction of $1.3 billion from the
strengthening of the Canadian dollar against foreign currencies.
    Actuarial and other policy liabilities were up by $5.4 billion from the
June 30, 2008 amount of $78.2 billion. Business growth and an increase of $4.1
billion resulting from the weakening of the Canadian dollar against foreign
currencies were partially offset by a reduction in changes in fair value of
held-for-trading assets of $3.1 billion.
    Shareholders' equity, including Sun Life Financial's preferred share
capital, was $17.9 billion as at June 30, 2009 compared to $17.4 billion as at
December 31, 2008 and $17.5 billion as at June 30, 2008. The increase of $580
million between December 31, 2008 and June 30, 2009 resulted primarily from:

    
    (i)    shareholders' net income of $413 million, before preferred share
           dividends of $35 million;
    (ii)   unrealized gains on available-for-sale assets in other
           comprehensive income (OCI) of $782 million; and
    (iii)  net proceeds of $246 million from the issue of 6% preferred
           shares; partially offset by
    (iv)   common share dividend payments of $403 million; and
    (v)    a decrease of $455 million from the strengthening of the
           Canadian dollar.
    

    As at August 3, 2009, Sun Life Financial Inc. had 560.8 million common
shares and 71.0 million preferred shares outstanding.


    
    CASH FLOWS

                                                 Quarterly
                                                  Results       Year to date
    -------------------------------------------------------------------------
    ($ millions)                               Q2'09   Q2'08    2009    2008
    -------------------------------------------------------------------------
    Cash and cash equivalents, beginning
     of period                                 9,366   3,257   7,263   3,603
    Cash flows provided by (used in):
      Operating activities                     1,113     599   1,811     792
      Financing activities                       225     124     777     178
      Investing activities                    (1,058)   (819)   (365) (1,483)
    Changes due to fluctuations in
     exchange rates                             (481)    (47)   (321)     24
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents       (201)   (143)  1,902    (489)
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period   9,165   3,114   9,165   3,114
    Short-term securities, end of period       2,035   2,268   2,035   2,268
    -------------------------------------------------------------------------
    Total cash, cash equivalents and
     short-term securities                    11,200   5,382  11,200   5,382
    -------------------------------------------------------------------------
    

    Net cash, cash equivalents and short-term securities of $11.2 billion as
at the end of the second quarter of 2009 were up by $5.8 billion compared to
the second quarter of 2008.
    Cash generated by operations was $514 million higher in the second
quarter of 2009 than 2008. The increase was mainly due to a higher level of
premiums partially offset by increased policyholder payments and expenses.
Cash provided by financing activities in the second quarter of 2009 was $101
million higher than in the same period a year ago mostly due to a $250 million
issuance of preferred shares and a reduction of $99 million in share
repurchases, partly offset by a net decrease of $49 million in the issuance of
new debentures compared to the comparable period a year ago. Cash used in
investing activities was up by $239 million in the second quarter of 2009
compared with the same quarter of 2008 from an increased level of long-term
asset purchases. The strengthening of the Canadian dollar decreased cash
balances by $481 million in the second quarter of 2009 compared to $47 million
in the comparable period a year ago.
    Cash provided by operating activities for the six months ended June 30,
2009 was $1.0 billion higher than the comparable period a year ago. The
increase of $1.7 billion in premiums was only partly offset by higher
policyholder payments and expenses. Financing activities for the first six
months of 2009 provided $599 million more in cash than the comparable period
of 2008 from a combination of increased preferred share and debenture
issuances and reduced level of share repurchases. Cash used by investing
activities was $1.1 billion lower in the first six months of 2009 than 2008
mostly from a lower level of investing as a result of the Company's decision
to maintain higher levels of liquidity due to current market conditions. The
strengthening of the Canadian dollar reduced cash balances by $321 million in
the first six months of 2009 compared to an increase of $24 million in the
same period a year ago from a weakening of the Canadian dollar.

    
    QUARTERLY FINANCIAL RESULTS

    The following table provides a summary of Sun Life Financial's results for
the eight most recently completed quarters.


    -------------------------------------------------------------------------
                      Q2'09  Q1'09  Q4'08  Q3'08  Q2'08  Q1'08  Q4'07  Q3'07
    -------------------------------------------------------------------------
    Common share-
     holders' net
     income (loss)
     ($millions)        591   (213)   129   (396)   519    533    555    577
    Operating earnings
     (loss) ($millions) 591   (186)  (696)  (396)   519    533    560    583
    Basic EPS ($)      1.06  (0.38)  0.23  (0.71)  0.92   0.95   0.98   1.02
    Fully diluted
     EPS ($)           1.05  (0.38)  0.23  (0.71)  0.91   0.93   0.97   1.00
    Fully diluted
     operating EPS ($) 1.05  (0.33) (1.25) (0.71)  0.91   0.93   0.98   1.01
    Total revenue
     ($millions)      8,720  5,028  4,706  2,560  4,411  3,886  5,405  5,699
    Total AUM
     ($billions)        397    375    381    389    413    415    425    427
    -------------------------------------------------------------------------

    INVESTMENTS
    

    The Company had total invested assets of $108 billion as at June 30,
2009. The majority of the Company's general funds are invested in medium-to
long-term fixed income instruments such as bonds and mortgages. The Company
holds 86% of its invested assets in cash and fixed income investments. Stocks
and real estate comprised 4% and 5% of the portfolio, respectively, as at June
30, 2009. The remaining 5% of the portfolio is comprised of policy loans,
derivatives and other invested assets.
    As at June 30, 2009, the Company held $60.4 billion of bonds, which
constituted 56% of the Company's overall investment portfolio. Bonds with an
investment grade of "A" or higher represented 65%, and bonds rated "BBB" or
higher represented 95% of the total bond portfolio as at June 30, 2009, down
from 97% at December 31, 2008. The decrease is mainly due to downgrades in the
bond portfolio, primarily the financial sector, as a result of the weaker
credit environment.
    Included in $60.4 billion of bonds, the Company held $12.7 billion of
privately held bonds, which constituted 21% of the Company's overall bond
portfolio. Bonds that are not issued or guaranteed by sovereign, regional and
municipal governments represented 75% of the total bond portfolio as at June
30, 2009, unchanged from December 31, 2008.
    The Company's gross unrealized losses as at June 30, 2009 for
available-for-sale bonds and held-for-trading bonds were $1.1 billion and $4.9
billion, respectively, compared with $1.9 billion and $7.1 billion,
respectively, at December 31, 2008. The change is primarily due to tightening
of credit spreads partially offset by increases in interest rates. Gross
unrealized losses reflect the difference between the fair value and amortized
cost.
    The Company's bond portfolio as at June 30, 2009 included $15.4 billion
in the financial sector, representing approximately 25% of the Company's bond
portfolio, or 14% of the Company's total invested assets. This compares to
$15.5 billion as at December 31, 2008. The $0.1 billion decrease in the value
of financial sector bond holdings is primarily the result of increase in
interest rates and strengthening in the Canadian dollar offset by credit
spread narrowing.
    The Company's bond portfolio as at June 30, 2009 included $4.6 billion of
asset-backed securities reported as bonds, representing approximately 8% of
the Company's bond portfolio, or 4% of the Company's total invested assets.
This compares to $5.1 billion as at December 31, 2008.


    
                                                     June 30,    December 31,
                                                        2009            2008
    -------------------------------------------------------------------------
                                                      Invest-         Invest-
                                                Fair    ment    Fair    ment
    ($ millions)                               value  grade %  value  grade %
    -------------------------------------------------------------------------
    Commercial mortgage-backed securities      1,840    98.4%  1,889    99.7%
    Residential mortgage-backed securities
      Agency                                     958   100.0%  1,138   100.0%
      Non-agency                               1,016    89.7%  1,092    98.4%
    Collateralized debt obligations              158    65.8%    215    80.8%
    Other(*)                                     638    90.3%    754    97.3%
    -------------------------------------------------------------------------
    Total                                      4,610    94.6%  5,088    98.3%
    -------------------------------------------------------------------------
    (*) Other includes sub-prime, a portion of the Company's exposure to
        Alt-A and other asset-backed securities
    

    The fair value of the Company's asset-backed securities reported as bonds
is further broken down in the tables below to reflect ratings and vintages of
the assets within this portfolio. The Company determines impairments on
securitized assets by using discounted cash flow models that consider losses
under current and expected economic conditions. Assumptions used include
macroeconomic factors such as commercial and residential property values and
unemployment rates. If the cash flow modelling results in an economic loss and
the Company believes the loss is probable of occurring, an impairment is
recorded. The asset-backed portfolio is highly sensitive to fluctuations in
macroeconomic factors. Further write-downs on previously impaired securities
may result from continued deterioration in economic factors such as property
values and unemployment rates.


    
    As at                         RMBS -      RMBS -
     June 30, 2009      CMBS      Agency  Non-agency        CDOs       Other
    -------------------------------------------------------------------------
    Rating
    AAA                74.1%      100.0%       33.0%        7.1%       53.7%
    AA                  7.3%        0.0%       40.8%       24.0%        8.1%
    A                   8.5%        0.0%       11.6%        0.5%       15.7%
    BBB                 8.5%        0.0%        4.3%       34.2%       12.8%
    BB & Below          1.6%        0.0%       10.3%       34.2%        9.7%
    -------------------------------------------------------------------------
    Total             100.0%      100.0%      100.0%      100.0%      100.0%
    -------------------------------------------------------------------------

    Vintage
    2005 & Prior       84.2%       62.1%       90.2%       70.7%       56.9%
    2006               12.1%        8.7%        8.3%        8.5%       17.4%
    2007                3.5%       13.2%        1.5%       20.8%        2.0%
    2008                0.1%       15.8%        0.0%        0.0%       23.7%
    2009                0.1%        0.2%        0.0%        0.0%        0.0%
    -------------------------------------------------------------------------
    Total             100.0%      100.0%      100.0%      100.0%      100.0%
    -------------------------------------------------------------------------
    CMBS = Commercial Mortgage-Backed Securities;
    RMBS = Residential Mortgage-Backed Securities,
    CDOs = Collateralized Debt Obligations


    As at                         RMBS -      RMBS -
     December 31, 2008  CMBS      Agency  Non-agency        CDOs       Other
    -------------------------------------------------------------------------
    Rating
    AAA                74.5%      100.0%       33.2%       19.1%       51.3%
    AA                  7.7%        0.0%       48.0%       46.5%       13.9%
    A                   8.3%        0.0%       11.6%       10.5%       20.4%
    BBB                 9.2%        0.0%        5.6%        4.7%       11.7%
    BB & Below          0.3%        0.0%        1.6%       19.2%        2.7%
    -------------------------------------------------------------------------
    Total             100.0%      100.0%      100.0%      100.0%      100.0%
    -------------------------------------------------------------------------

    Vintage
    2005 & Prior       85.6%       59.2%       90.2%       75.0%       59.3%
    2006               10.8%       11.1%        8.2%        9.5%       18.5%
    2007                3.5%       13.1%        1.6%       15.5%        2.5%
    2008                0.1%       16.6%        0.0%        0.0%       19.7%
    -------------------------------------------------------------------------
    Total             100.0%      100.0%      100.0%      100.0%      100.0%
    -------------------------------------------------------------------------
    CMBS = Commercial Mortgage-Backed Securities;
    RMBS = Residential Mortgage-Backed Securities,
    CDOs = Collateralized Debt Obligatons
    

    As at June 30, 2009, the Company had indirect exposure to residential
sub-prime and Alternative-A (Alt-A) loans of $146 million and $127 million,
respectively, together representing approximately 0.3% of the Company's total
invested assets. Alt-A loans generally are residential loans made to borrowers
with credit profiles that are stronger than sub-prime but weaker than prime.
90.4% of these investments either were issued before 2006 or have an "AAA"
rating.
    The Company's mortgage portfolio consists almost entirely of first
mortgages. While the Company generally requires a maximum loan to value ratio
of 75%, it may invest in mortgages with a higher loan to value ratio in Canada
if the mortgage is insured. As at June 30, 2009, the mix of the Company's
mortgage portfolio was 81.4% non-residential and 18.6% residential and
approximately 33.4% of mortgage loans will mature by December 31, 2013. As at
June 30, 2009, the Company's commercial mortgage portfolio had a carrying
value of $14.8 billion, which is spread across approximately 4,100 loans.


    
    -------------------------------------------------------------------------
    ($ millions)          June 30, 2009               December 31, 2008
    -------------------------------------------------------------------------
                                Non-                            Non-
             Residential Residential   Total Residential Residential   Total
    -------------------------------------------------------------------------
    Canada         2,531       5,552   8,083       2,620       5,896   8,516
    United
     States          322       6,819   7,141         342       7,338   7,680
    United
     Kingdom           -          75      75           -          71      71
    -------------------------------------------------------------------------
    Total
     Mortgages     2,853      12,446  15,299       2,962      13,305  16,267
    -------------------------------------------------------------------------
    Corporate
     Loans             -           -   5,878           -           -   6,035
    -------------------------------------------------------------------------
    Total
     Mortgages
     & Corporate
     Loans                            21,177                          22,302
    -------------------------------------------------------------------------

    The distribution of mortgages and corporate loans by credit quality as at
June 30, 2009 and December 31, 2008 is shown in the tables below.


                                        June 30, 2009
    -------------------------------------------------------------------------
    ($ millions)     Gross Carrying Value            Allowance for losses
                    ----------------------          ----------------------
               Mortgages   Corporate   Total   Mortgages   Corporate   Total
                               loans                           loans
    -------------------------------------------------------------------------
    Not past
     due         $15,125      $5,825 $20,950         $ -         $ -     $ -
    Past due:
      Past due
       less than
       90 days        15           8      23           -           -       -
      Past due
       90 to
       179 days        -           -       -           -           -       -
      Past due
       180 days
       or more         -           -       -           -           -       -
    Impaired         189          65     254          30          20      50
    -------------------------------------------------------------------------
    Balance,
     June 30,
     2009        $15,329       $5,898 $21,227         $30         $20     $50
    -------------------------------------------------------------------------


                                      December 31, 2008
    -------------------------------------------------------------------------
    ($ millions)     Gross Carrying Value            Allowance for losses
                    ----------------------          ----------------------
               Mortgages   Corporate   Total   Mortgages   Corporate   Total
                               loans                           loans
    -------------------------------------------------------------------------
    Not past
     due         $16,171      $5,946 $22,117         $ -         $ -     $ -
    Past due:
      Past due
       less than
       90 days        17          17      34           -           -       -
      Past due
       90 to
       179 days        -          14      14           -           -       -
      Past due
       180 days
       or more         1           9      10           -           -       -
    Impaired          91          59     150          13          10      23
    -------------------------------------------------------------------------
    Balance,
     December 31,
     2008        $16,280      $6,045 $22,325         $13         $10     $23
    -------------------------------------------------------------------------
    

    Net impaired assets for mortgages and corporate loans, net of allowances,
amounted to $204 million as at June 30, 2009, $77 million more than the
December 31, 2008 level for these assets. In addition to allowances reflected
in the carrying value of mortgages and corporate loans, the Company had $3.0
billion of reserves for possible future asset defaults for all financial
assets included in its actuarial liabilities as at June 30, 2009, compared
with $2.3 billion as at December 31, 2008.
    The values of the Company's derivative instruments are summarized in the
following table. The use of derivatives is measured in terms of notional
amounts, which serve as the basis for calculating payments and are generally
not actual amounts that are exchanged.


    
    -------------------------------------------------------------------------
    ($ millions)                            June 30, 2009  December 31, 2008
    -------------------------------------------------------------------------
    Net fair value                                   (592)              (550)
    Total notional amount                          48,820             50,796
    Credit equivalent amount                          895              1,260
    Risk-weighted credit equivalent amount              6                 28
    -------------------------------------------------------------------------
    

    The total notional amount decreased to $48.8 billion as at June 30, 2009,
from $50.8 billion as at December 31, 2008, and the net fair value was $(592)
million as at June 30, 2009 compared with the December 31, 2008 amount of
$(550) million. The credit equivalent amount, a measure used to approximate
the potential credit exposure, is determined as the replacement cost of the
derivative contracts having a positive fair value plus an amount representing
the potential future credit exposure. The risk-weighted credit equivalent
amount is a measure used to determine the amount of capital necessary to
support derivative transactions for certain Canadian regulatory purposes. It
is determined by weighting the credit equivalent amount according to the
nature of the derivative and the creditworthiness of the counterparties.
    The invested asset values and ratios presented in this section are based
on the carrying value of the respective asset categories. Carrying value for
available-for-sale and held-for-trading invested assets are equal to fair
value. In the event of default, if the amounts recovered are insufficient to
satisfy the related actuarial liability cash flows that the assets are
intended to support, credit exposure may be greater than the carrying value of
the asset.

    CAPITAL MANAGEMENT AND LIQUIDITY

    Sun Life Financial has a policy designed to maintain a strong capital
position and provide the flexibility necessary to take advantage of growth
opportunities, to support the risk associated with its businesses and to
optimize shareholder return. The Company's capital base is structured to
exceed regulatory and internal capital targets and maintain strong credit
ratings while maintaining a capital efficient structure and desired capital
ratios. Capital is managed both on a consolidated basis under principles that
consider all the risks associated with the business as well as at the business
unit level under the principles appropriate to the jurisdiction in which it
operates. Sun Life Financial manages capital for all of its subsidiaries in a
manner commensurate with its risk profile.
    Sun Life, including all of its business groups, conducts a rigorous
capital plan annually where capital options, fund raising alternatives and
dividend policies are presented to the Board. Capital reviews are regularly
conducted which consider the potential impacts under various business,
interest rate and equity market scenarios. Relevant components of the capital
reviews are presented to the Board on a quarterly basis.
    Sun Life Assurance Company of Canada (Sun Life Assurance), the Company's
principal operating subsidiary in Canada, is subject to the Minimum Continuing
Capital Surplus Requirements (MCCSR) of the Office of the Superintendent of
Financial Institutions, Canada (OSFI). OSFI's capital target for life
insurance companies is an MCCSR ratio of 150% or greater. With an MCCSR ratio
of 231% Sun Life Assurance was well above the supervisory target as at June
30, 2009, compared to 232% as at December 31, 2008. The MCCSR ratio remained
relatively flat with December 31, 2008 as the impact of equity markets largely
offset credit experience. The financial strength ratings for Sun Life
Financial's principal operating subsidiaries remained unchanged from the first
quarter of 2009.
    The Company's risk management framework includes a number of liquidity
risk management procedures, including prescribed liquidity stress testing,
active monitoring and contingency planning. The Company maintains an overall
asset liquidity profile that exceeds requirements to fund potential demand
liabilities under prescribed adverse liability demand scenarios. The Company
also actively manages and monitors the matching of its asset positions against
its commitments, together with the diversification and credit quality of its
investments, against established targets.
    The Company's primary source of funds is cash provided by operating
activities, including premiums, investment management fees and net investment
income. These funds are used primarily to pay policy benefits, dividends to
policyholders, claims, commissions, operating expenses, interest expenses and
shareholder dividends. Cash flows generated from operating activities are
generally invested to support future payment requirements, including the
payment of dividends to shareholders.
    On May 20, 2009, Sun Life Financial Inc. completed a public offering of
$250 million of 6.0% Class A Non-Cumulative 5-Year Rate Reset Preferred Shares
Series 6R. On June 30, 2009, the Company also completed a public offering of
$300 million of Series D Senior Unsecured 5.7% Debentures due 2019. The net
proceeds from both offerings will be used for general corporate purposes,
including investments in subsidiaries.
    On May 12, 2009, the Company announced amendments to its Canadian
dividend reinvestment and share purchase plan (the "Plan"). Under the Plan,
common and preferred shareholders may chose to automatically have their
dividends reinvested in additional common shares of SLF Inc. or may purchase
additional common shares for cash. Under the amended Plan, SLF Inc. may issue
common shares from treasury at a discount of up to 5% to the volume weighted
average market price determined in accordance with the Plan. Prior to the
amendments to the Plan, common shares acquired on behalf of participants of
the Plan have been purchased through the TSX at the market price. On June 30,
2009, SLF Inc. issued approximately 1 million common shares from treasury at a
discount to the average market price of 2% for reinvested dividends.
    On June 15, 2009 Sun Life Financial announced its proposed acquisition of
the United Kingdom operations of Lincoln National Corporation for an estimated
purchase price of $359 million. The final purchase price is subject to
adjustment related to market and business performance between signing and
closing and to a potential adjustment related to the Lincoln UK pension plan.
The completion of the transaction is subject to regulatory approvals and the
satisfaction of customary closing conditions and is anticipated to be
completed later this year. Sun Life Financial expects to use existing capital
to finance the acquisition.

    OUTLOOK

    During the second quarter of 2009, the economy showed some signs of
improvement. In the U.S., the S&P 500 increased by more than 15%, its best
quarter since 1998, while consumer confidence measures, manufacturing orders
and certain housing data surprised on the upside during the second quarter.
Despite these positive indicators, the U.S. Federal Reserve predicts that the
economy will shrink between 1.0 - 1.5% this year and unemployment, which
reached a 26-year high of 9.5% in June, could exceed 10%. The Federal Reserve
kept interest rates unchanged at essentially zero or in a range of 0% - 0.25%
at their two meetings held during the second quarter and recently indicated
that rates would stay at historic lows for an extended period. In Canada, the
S&P/TSX Composite Index increased by almost 19%. During the second quarter of
2009, the Bank of Canada maintained its target for the overnight rate at 0.25%
and indicated the overnight rate can be expected to remain at its current
level until the end of the second quarter of 2010 in order to achieve the
inflation target. The Bank also noted that while financial conditions improved
during the second quarter of 2009, the rapid appreciation of the Canadian
dollar may undermine the positive impact of economic improvements.
    In response to the global financial crisis, governments and regulators
are working to develop the appropriate level of financial regulation required
to ensure that capital, liquidity and risk management practices are sufficient
to withstand severe economic downturns. While the impacts on the life
insurance sector are not known, it remains probable that increased regulation
(including at the holding company level) will lead to higher levels of
required capital and liquidity and limits on levels of financial leverage
which could result in lower returns on capital for shareholders.
    The Company expects that macroeconomic challenges and market volatility
will continue for some time. The Company previously generated annual operating
earnings of $1.9 billion, $2.1 billion and $2.3 billion in 2005, 2006 and
2007, respectively. Earnings at these levels reflected the corresponding asset
and account values in existence at that time and an environment characterized
by relatively stable interest rates, rising equity markets and abundant
credit. Going forward sustainable earnings levels are expected to reflect
today's lower asset levels and account values as well as higher risk
management costs, the expected higher levels of capital required by
regulators, lower leverage, currency fluctuations and the potential for higher
tax costs as governments around the world look to address higher deficits.
    In the third quarter of 2009, the Company expects to update the equity
related assumptions used to value variable annuity and segregated fund
liabilities and required capital in accordance with professional guidance. The
update, which is part of an annual process which updates the Company's
economic assumptions with recent data, is being driven by the pronounced
equity market volatility experienced over the past year.
    In addition, it is expected that updates to the interest rate related
assumptions used in various valuation models will also result in additional
reserves in the third quarter of 2009. These updates are being driven
primarily by new criteria provided by a committee of the Canadian Institute of
Actuaries.
    While the precise impact of these changes is not yet determinable, the
Company estimates that the total unfavourable net income impact of these
changes will be in the range of $450 million to $550 million after-tax,
including revisions to Conditional Tail Expectations (CTE levels) and other
management actions. These impacts are based on equity and interest rate levels
as at June 30, 2009. In addition, the Company expects that these updates will
reduce its regulatory capital ratios. However, the Company expects to remain
strongly capitalized after these updates are in effect. The earnings impact
from these changes is non-cash, and should long-term economic conditions be
consistent with the Company's best estimates the majority of the additional
reserves will be released into income over time.
    The estimated impact of updates to equity and interest rate related
assumptions is forward-looking information. These impacts are based on equity
and interest rate levels as at June 30, 2009. Actual results can differ
materially from these estimates for a variety of reasons including management
actions, effective tax rates, model error and currency exchange rates. Changes
in accounting or actuarial valuation methods, models or assumptions could
result in material changes to the reported impact on net income. An external
review of models will take place prior to the finalization of these assumption
changes.

    MARKET SENSITIVITY

    The Company's earnings are dependent on the determination of its
policyholder obligations under its annuity and insurance contracts. These
amounts are determined using internal valuation models and are recorded in the
Company's financial statements, primarily as actuarial liabilities. The
determination of these obligations requires management to make assumptions
about the future level of equity market performance, interest rates and other
factors over the life of its products.
    The estimated impact on the Company's policyholder obligations from an
immediate 10% increase across all equity markets as at June 30, 2009, would be
an increase in net income in the range of $150 million to $225 million.
Conversely, the impact of an immediate 10% drop across all equity markets
would be an estimated decrease in net income in the range of $200 million to
$275 million. These sensitivities assume that the Company's actual equity
exposures exactly match the broader equity markets. Since in practice actual
equity-related exposures generally differ from broad market indices (due to
the impact of active management, basis risk, and other factors), realized
sensitivities may differ significantly from the market shocks illustrated
above.
    The estimated impact from these obligations of an immediate parallel
increase of 1% in interest rates as at June 30, 2009, across the yield curve
in all markets, would be an increase in net income in the range of $100
million to $150 million. Conversely, an immediate 1% parallel decrease in
interest rates would result in an estimated decrease in net income in the
range of $200 million to $275 million.
    The Company provides guarantees through its variable annuity business in
Canada and the United States which are linked to underlying fund performance.


    
    -------------------------------------------------------------------------
                          June 30, 2009               December 31, 2008
    -------------------------------------------------------------------------
                              Amount Actuarial              Amount Actuarial
                      Fund        at      Lia-      Fund        at      Lia-
    ($ millions)     Value    Risk(4) bilities     Value    Risk(4) bilities
    -------------------------------------------------------------------------
    Total           31,547     7,581     2,057    29,730     9,063     3,036
    -------------------------------------------------------------------------
    

    Guaranteed benefits are contingent and only payable upon death, maturity,
withdrawal or annuitization if fund values remain below guaranteed values. If
markets do not recover, liabilities on current in-force business would be due
primarily in the period from 2013 to 2031. The amount at risk and actuarial
liabilities at June 30, 2009 decreased from December 31, 2008 primarily as a
result of improved market conditions. The increase in the fund value is the
result of improved market conditions and growth attributable to new business.
    As indicated earlier, the Company's principal operating subsidiary, Sun
Life Assurance, is subject to the MCCSR capital rules for a life insurance
company in Canada. The MCCSR ratio calculation involves using qualifying
models or applying quantitative factors to specific assets and liabilities
based on a number of risk components to arrive at required capital and
comparing this requirement to available capital to assess capital adequacy.
Certain of these risk components, along with available capital, are sensitive
to changes in equity markets. The estimated impact on the MCCSR ratio of Sun
Life Assurance from an immediate 10% increase across all equity markets as at
June 30, 2009 would result in an increase in the MCCSR ratio of up to 5
percentage points. Conversely, the estimated impact on the MCCSR ratio of Sun
Life Assurance from an immediate 10% drop across all equity markets would
result in a decrease in the MCCSR ratio of up to 5 percentage points.
    Capital is managed both on a consolidated basis under principles that
consider all the risks associated with the business as well as at the business
unit level under the principles appropriate to the jurisdiction in which it
operates. SLF Inc. was well above its minimum internal capital targets as at
June 30, 2009. SLF Inc. would also remain well above its minimum targets after
a 10% drop in equity markets from June 30, 2009 levels.
    The market sensitivities above are forward-looking statements. These are
measures of the Company's estimated net income and capital sensitivity to the
changes in interest rate and equity market level described above, based on a
starting point and business mix in place as of June 30, 2009. Each of these
sensitivities is determined independently and therefore generally assumes that
all other variables stay constant. Actual results can differ materially from
these estimates for a variety of reasons including differences in the pattern
or distribution of the shocks illustrated above, the interaction between these
factors, model error, or changes in other assumptions such as business mix,
effective tax rates and the valuation allowance required for future tax
assets, policyholder behaviour, currency exchange rates, and other market
variables relative to those underlying the June 30, 2009 calculation date for
these sensitivities.
    These sensitivities reflect the composition of the Company's assets and
liabilities as of June 30, 2009. Changes in these positions due to new sales
or maturities, asset purchases/sales or other management actions could result
in material changes to these reported sensitivities. In particular, these
sensitivities reflect the expected impact of hedging activities based on the
hedging programs and portfolios in place as of the June 30, 2009 calculation
date. The actual impact of these hedging activities can differ materially from
that assumed in the determination of these indicative sensitivities due to
ongoing hedge rebalancing activities, changes in the scale or scope of hedging
activities, changes in the cost or general availability of hedging
instruments, basis risk (the risk that hedges do not exactly replicate the
underlying portfolio experience), operational risk in the ongoing management
of the hedge programs or the potential failure of hedge counterparties to
perform in accordance with expectations.
    Similarly, the net income sensitivities are based on financial reporting
methods and assumptions in effect as of June 30, 2009. Changes in accounting
or actuarial valuation methods, models or assumptions, including the
prospective equity and interest rate actuarial assumption changes described
earlier in this document, could result in material changes to these reported
sensitivities. Changes in interest rates and equity market prices in excess of
the ranges illustrated may result in greater than proportional impacts,
particularly on a decrease in interest rates.
    For the reasons outlined above, these sensitivities should only be viewed
as directional estimates of the underlying income sensitivity of each factor
under these specialized assumptions, and should not be viewed as predictors of
the Company's future earnings. Given the nature of these calculations, the
Company cannot provide assurance that those actual earnings impacts will be
within the indicated ranges.
    Additional information concerning the Company's sensitivities is included
in Sun Life Financial's 2008 Annual MD&A and 2008 Consolidated Financial
Statements, which are available on the Company's website at www.sunlife.com.

    ENTERPRISE RISK MANAGEMENT

    Sun Life Financial uses an enterprise risk management framework to assist
in categorizing, monitoring and managing the risks to which it is exposed. The
major categories of risk are credit risk, market risk, insurance risk,
operational risk and strategic risk. Operational risk is a broad category that
includes legal and regulatory risks, people risks, and systems and processing
risks.
    Through its ongoing enterprise risk management procedures, Sun Life
Financial reviews the various risk factors identified in the framework and
reports to senior management and to the Risk Review Committee of the Board at
least quarterly. Sun Life Financial's enterprise risk management procedures
and risk factors are described in Sun Life Financial Inc.'s annual MD&A and
Annual Information Form (AIF) for the year ended December 31, 2008, which are
available on the Company's website at www.sunlife.com.

    LEGAL AND REGULATORY MATTERS

    Information concerning legal and regulatory matters is provided in Sun
Life Financial Inc.'s annual Consolidated Financial Statements, annual MD&A
and AIF for the year ended December 31, 2008, copies of which are available on
the Company's website at www.sunlife.com and at www.sedar.com and www.sec.gov.

    INTERNAL CONTROL OVER FINANCIAL REPORTING

    Management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of the Company's financial reporting and the
preparation of its financial statements in accordance with GAAP.
    There were no changes in the Company's internal control over financial
reporting during the period beginning on April 1, 2009 and ended on June 30,
2009 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

    TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

    The Canadian Accounting Standards Board has confirmed January 1, 2011 as
the date IFRS will replace current Canadian standards and interpretations as
Canadian GAAP for publicly accountable enterprises. In order to prepare for
the conversion to IFRS, Sun Life Financial has developed an IFRS changeover
plan. This plan addresses key elements of the Company's conversion to IFRS
including:

    
    -   Education and training requirements
    -   Accounting policy changes
    -   Information technology and data systems impacts
    -   Impacts on business activities
    -   Financial reporting requirements
    -   Internal control over financial reporting
    

    The IFRS changeover plan is well underway, with key IFRS standards
analyzed and compared against Sun Life Financial's current Canadian GAAP
policies. The key accounting policy alternatives have been identified,
including contract classification and first-time adoption of IFRS, however
final decisions are pending. The impacts of these decisions are currently
being assessed. Developments relating to existing standards and new standards
are being monitored to assess the impact on the changeover plan.
    The core IFRS team has partnered with all of the relevant functional
areas of the Company to assess the specific and overall impact of IFRS,
including information technology, data systems, Treasury and Taxation. As the
implementation process moves forward, the Company will continue to monitor its
changeover plan; accordingly, changes to the existing plan may be required.
    The Company is currently in the detailed implementation phase of its
changeover plan finalizing, among other things, business and systems
requirements, data modelling, financial statement and notes development.

    USE OF NON-GAAP FINANCIAL MEASURES

    Management evaluates the Company's performance on the basis of financial
measures prepared in accordance with GAAP, including earnings, fully diluted
EPS and ROE. Management also measures the Company's performance based on
certain non-GAAP measures, including operating earnings, and financial
measures based on operating earnings, including operating EPS and operating
ROE, that exclude certain items that are not operational or ongoing in nature.
Management also uses financial performance measures that are prepared on a
constant currency basis, which exclude the impact of currency fluctuations.
The Company also reviews adjusted revenue, which excludes the impact of
currency and fair value changes in held-for-trading assets and derivative
instruments from total revenue. Management also monitors MFS's pre-tax
operating profit margin ratio, the denominator of which excludes certain
investment income and includes certain commission expenses, as a means of
measuring the underlying profitability of MFS. Value of new business is used
to measure overall profitability. Value of new business is based on actuarial
amounts for which there are no comparable amounts under GAAP. Management
believes that these non-GAAP financial measures provide information useful to
investors in understanding the Company's performance and facilitate the
comparison of the quarterly and full-year results of the Company's ongoing
operations. These non-GAAP financial measures do not have any standardized
meaning and may not be comparable with similar measures used by other
companies. They should not be viewed as an alternative to measures of
financial performance determined in accordance with GAAP. Additional
information concerning these non-GAAP financial measures and reconciliations
to GAAP measures are included in Sun Life Financial Inc.'s annual and interim
MD&A and the Supplementary Financial Information packages that are available
on www.sunlife.com under Investors - Financial Results & Reports - Year-end
Reports.
    The following table sets out the items that have been excluded from the
Company's operating earnings in the eight most recently completed quarters and
provides a reconciliation to the Company's earnings based on Canadian GAAP.

    
    RECONCILIATION OF OPERATING EARNINGS

    ($ millions)                         Quarterly results
    -------------------------------------------------------------------------
                      Q2'09  Q1'09  Q4'08  Q3'08  Q2'08  Q1'08  Q4'07  Q3'07
    -------------------------------------------------------------------------
    Reported Earnings
     (GAAP)             591   (213)   129   (396)   519    533    555    577
    After-tax gain
     (loss) on special
     items
      Re-branding
       expenses in
       Canada             -      -      -      -      -      -     (3)    (5)
      EBG integration
       costs              -      -      -      -      -      -     (2)    (1)
      Gain on sale of
       interest in CI
       Financial          -      -    825      -      -      -      -      -
      Restructuring
       costs to reduce
       expense levels     -    (27)     -      -      -      -      -      -
    -------------------------------------------------------------------------
    Total special
     items                -    (27)   825      -      -      -     (5)    (6)
    -------------------------------------------------------------------------
    Operating earnings  591   (186)  (696)  (396)   519    533    560    583
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    

    FORWARD-LOOKING STATEMENTS

    Certain statements contained in this document, including those relating
to the Company's strategies and other statements that are predictive in
nature, that depend upon or refer to future events or conditions, including
information set out in this MD&A under the headings of Future Impact of
Prospective Actuarial Assumption Changes, Outlook and Market Sensitivities, or
that include words such as "expects", "anticipates", "intends", "plans",
"believes", "estimates" or similar expressions, are forward-looking statements
within the meaning of securities laws. Forward-looking statements include the
information concerning possible or assumed future results of operations of the
Company. These statements represent the Company's expectations, estimates and
projections regarding future events and are not historical facts.
Forward-looking statements are not guarantees of future performance and
involve risks and uncertainties that are difficult to predict. Future results
and stockholder value of SLF Inc. may differ materially from those expressed
in these forward-looking statements due to, among other factors, the matters
set out under "Risk Factors" in the Company's AIF and the factors detailed in
its other filings with Canadian and U.S. securities regulators, including its
annual and interim MD&A, and annual and interim financial statements, which
are available for review at www.sedar.com and www.sec.gov.
    Factors that could cause actual results to differ materially from
expectations include, but are not limited to, investment losses and defaults
and changes to investment valuations; the performance of equity markets;
interest rate fluctuations; other market risks including movement in credit
spreads; possible sustained economic downturn; risks related to market
liquidity; market conditions that adversely affect the Company's capital
position or its ability to raise capital; downgrades in financial strength or
credit ratings; the impact of mergers and acquisitions; the performance of the
Company's investments and investment portfolios managed for clients such as
segregated and mutual funds; insurance risks including mortality, morbidity,
longevity and policyholder behaviour including the occurrence of natural or
man-made disasters, pandemic diseases and acts of terrorism; changes in
legislation and regulations including tax laws; regulatory investigations and
proceedings and private legal proceedings and class actions relating to
practices in the mutual fund, insurance, annuity and financial product
distribution industries; risks relating to product design and pricing; the
availability, cost and effectiveness of reinsurance; the inability to maintain
strong distribution channels and risks relating to market conduct by
intermediaries and agents; currency exchange rate fluctuations; the cost,
effectiveness and availability of risk mitigating hedging programs; the
creditworthiness of guarantors and counterparties to derivatives; risks
relating to operations in Asia including risks relating to joint ventures; the
impact of competition; risks relating to financial modelling errors; business
continuity risks; failure of information systems and Internet enabled
technology; breaches of computer security and privacy; dependence on
third-party relationships including outsourcing arrangements; the ability to
attract and retain employees; the impact of adverse results in the closed
block of business; the ineffectiveness of risk management policies and
procedures and the potential for financial loss related to changes in the
environment. The Company does not undertake any obligation to update or revise
these forward-looking statements to reflect events or circumstances after the
date of this report or to reflect the occurrence of unanticipated events,
except as required by law.
    The financial results presented in this document are unaudited.

    Earnings Conference Call

    The Company's second quarter 2009 financial results will be reviewed at a
conference call today at 9 a.m. ET. To listen to the call via live audio
webcast and to view the presentation slides, as well as related information,
please visit www.sunlife.com and click on the link to Q2 results from the
"Investors" section of the home page 10 minutes prior to the start of the
presentation. The webcast and presentation will be archived and made available
on the Company's website, www.sunlife.com, following the call.
    The conference call can also be accessed by phone by dialing 416-644-3416
(Toronto), or 1-800-732-9307 (Canada/U.S.).

    Sun Life Financial

    Sun Life Financial is a leading international financial services
organization providing a diverse range of protection and wealth accumulation
products and services to individuals and corporate customers. Chartered in
1865, Sun Life Financial and its partners today have operations in key markets
worldwide, including Canada, the United States, the United Kingdom, Ireland,
Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of
June 30, 2009, the Sun Life Financial group of companies had total assets
under management of $397 billion. For more information please visit
www.sunlife.com.
    Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and
Philippine (PSE) stock exchanges under ticker symbol SLF.

    
    SUMMARY CONSOLIDATED FINANCIAL STATEMENTS


    Consolidated Statements of Operations
    -------------------------------------------------------------------------
                                         For the three           For the six
                                          months ended          months ended
    -------------------------------------------------------------------------
    (unaudited, in millions of
     Canadian dollars except for    June 30    June 30    June 30    June 30
     per share amounts)                2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenue
      Premium Income:
        Annuities                 $   1,531  $     882  $   2,884  $   1,699
        Life insurance                1,589      1,430      3,138      2,818
        Health insurance              1,072        994      2,189      1,974
    -------------------------------------------------------------------------
                                      4,192      3,306      8,211      6,491
    -------------------------------------------------------------------------
      Net investment income (loss):
        Changes in fair value of
         held-for-trading assets      2,858     (1,176)     1,953     (2,348)
        Income (loss) from
         derivative instruments        (366)        55       (447)      (415)
        Net gains (losses) on
         available-for-sale assets      (15)        24        (65)        52
        Other net investment
         income                       1,423      1,487      2,866      3,097
    -------------------------------------------------------------------------
                                      3,900        390      4,307        386
    -------------------------------------------------------------------------
      Fee income                        628        715      1,230      1,420
    -------------------------------------------------------------------------
                                      8,720      4,411     13,748      8,297
    -------------------------------------------------------------------------
    Policy benefits and expenses
      Payments to policyholders,
       beneficiaries and
       depositors:
        Maturities and surrenders     1,178      1,336      2,558      2,605
        Annuity payments                343        345        686        684
        Death and disability
         benefits                       784        687      1,632      1,368
        Health benefits                 802        736      1,602      1,454
        Policyholder dividends
         and interest on claims
         and deposits                   367        304        699        583
    -------------------------------------------------------------------------
                                      3,474      3,408      7,177      6,694
      Net transfers to (from)
       segregated funds                 242        196        350        308
      Increase (decrease) in
       actuarial liabilities          2,806     (1,000)     3,334     (2,540)
      Commissions                       424        377        821        752
      Operating expenses                767        712      1,544      1,464
      Premium taxes                      55         63        110        115
      Interest expense                  109        101        206        199
    -------------------------------------------------------------------------
                                      7,877      3,857     13,542      6,992
    -------------------------------------------------------------------------
    Income before income taxes
     and non-controlling interests      843        554        206      1,305
      Income tax expense (benefit)      228         11       (217)       201
      Non-controlling interests
       in net income of
       subsidiaries                       3          5          6         14
    -------------------------------------------------------------------------
    Total net income                    612        538        417      1,090
      Less: Participating
       policyholders' net income          4          2          4          3
    -------------------------------------------------------------------------
    Shareholders' net income            608        536        413      1,087
      Less: Preferred shareholder
       dividends                         17         17         35         35
    -------------------------------------------------------------------------
    Common shareholders' net
     income                       $     591  $     519  $     378  $   1,052
    -------------------------------------------------------------------------

    Earnings per share
      Basic                       $    1.06  $    0.92  $    0.68  $    1.87
      Diluted                     $    1.05  $    0.91  $    0.67  $    1.85



    Consolidated Balance Sheets
                                                            As at
    -------------------------------------------------------------------------
    (unaudited, in millions of                 June 30   December    June 30
     Canadian dollars)                            2009    31 2008       2008
    -------------------------------------------------------------------------
    Assets
      Bonds - held-for-trading               $  49,876  $  48,458  $  48,689
      Bonds - available-for-sale                10,512     10,616      9,905
      Mortgages and corporate loans             21,177     22,302     21,106
      Stocks - held-for-trading                  3,771      3,440      4,518
      Stocks - available-for-sale                  841      1,018        719
      Real estate                                4,941      4,908      4,490
      Cash, cash equivalents and short-term
       securities                               11,200      8,879      5,382
      Derivative assets                          1,306      2,669      1,715
      Policy loans and other invested assets     3,594      3,585      4,418
      Other invested assets - held-for-
       trading                                     380        380        464
      Other invested assets - available-for-
       sale                                        524        623        738
    -------------------------------------------------------------------------
      Invested assets                          108,122    106,878    102,144
      Goodwill                                   6,496      6,598      6,121
      Intangible assets                            968        878        812
      Other assets                               5,061      5,479      4,498
    -------------------------------------------------------------------------
      Total general fund assets              $ 120,647  $ 119,833  $ 113,575
    -------------------------------------------------------------------------
      Segregated funds net assets            $  70,772  $  65,762  $  73,245
    -------------------------------------------------------------------------

    Liabilities and equity
      Actuarial liabilities and other policy
       liabilities                           $  83,601  $  81,411  $  78,208
      Amounts on deposit                         4,114      4,079      3,702
      Deferred net realized gains                  253        251        272
      Senior debentures                          3,312      3,013      3,014
      Derivative liabilities                     1,898      3,219        739
      Other liabilities                          6,382      7,831      7,471
    -------------------------------------------------------------------------
      Total general fund liabilities            99,560     99,804     93,406
      Subordinated debt                          3,064      2,576      2,546
      Non-controlling interests in
       subsidiaries                                 33         44         41
      Total equity                              17,990     17,409     17,582
    -------------------------------------------------------------------------
      Total general fund liabilities and
       equity                                $ 120,647  $ 119,833  $ 113,575
    -------------------------------------------------------------------------
    Segregated funds contract liabilities    $  70,772  $  65,762  $  73,245
    -------------------------------------------------------------------------


    -------------------------------------------

    (1) Operating earnings and other financial information based on operating
        earnings such as operating earnings per share and operating return on
        equity are non-GAAP financial measures. For additional information
        please see "Use of Non-GAAP Financial Measures". All EPS measures in
        this document refer to fully diluted EPS, unless otherwise stated.
    (2) Together with its subsidiaries and joint ventures "the Company" or
        "Sun Life Financial".
    (3) Pre-tax operating profit margin ratio is a non-GAAP measure. See "Use
        of Non-GAAP Financial Measures."
    (4) Amount at risk is the excess of guaranteed values over fund values on
        all policies where the guaranteed value exceeds the fund value. Fund
        value and amount at risk are net of amounts reinsured. The amount at
        risk is not currently payable.
    





For further information:

For further information: Media Relations Contact: Steve Kee, Assistant
Vice-President, Communications, Tel: (416) 979-6237, steve.kee@sunlife.com;
Investor Relations Contact: Paul Petrelli, Vice-President, Investor Relations,
Tel: (416) 204-8163, investor.relations@sunlife.com


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